“I see my overwhelming challenge to be convincing clients about the need to either work longer or save money,” said Suzanne Uhl-Melanson of Commonwealth Financial Network.
According to Michael Wells at Moors & Cabot, Inc., “It comes down to one word: discipline.”
Commenting on the risk of falling short of financial goals, Phill Rogerson, managing director, consulting services for Russell’s Private Client Services business, said: “In today’s environment, it is important to focus on what you can control as an investor – such as your savings rate – and be cautiously prudent with the things you can’t control, such as the markets.”
Advisors take action; show increased certainty about asset allocation decisions
The results of the FPO also indicate a greater level of advisor certainty about the equity markets over the next 12 months. Regarding each of 13 asset classes, noticeably fewer advisors marked “not sure” about their plans to shift allocations compared to three months ago. For each asset class, 21% to 40% fewer advisors are unsure. This apparent decisiveness is in contrast to the first quarter FPO results in which, on average across the asset classes, 31% of advisors planned to increase allocations (now up to 33%) and 23% planned to decrease allocations (now up to 27%).
Among the examples, the survey shows an uptick in planned allocations to value-oriented U.S. equity asset classes (up 7 percentage points across the board) as well as to real estate (up 8 points). On the flip side, 39% and 43% of advisors plan to decrease their allocation to corporate and high yield bonds respectively, an increase of 9 points since March 2010 in both instances.
“An increasing allocation to U.S. value equity at this time could be perceived as a flight to quality amid recent global volatility because, despite the havoc the economic events of the past couple of years have wreaked on the U.S. economy and its future prospects, the United States remains the dominant economy today,” Rogerson said. “A steadying of asset allocation activity from last quarter could indicate that advisors and their clients are reaching a new short-term equilibrium and are refocusing again on the long-term goals for their investment choices so they can achieve their financial objectives.”
Regulatory changes expected to increase compliance costs
The effect of a tightening regulatory climate was also notable among the advisors surveyed. From a product perspective, half of all advisors surveyed plan to be more cautious about recommending leveraged exchange-traded funds (ETFs), and close to a third (31%) indicated the same approach in relation to equity-indexed annuities.
On the practice management front, most advisors indicated they will respond to regulatory changes by “seeking advice from compliance officers/hierarchy” (62%), “reassessing their clients’ situations, risk tolerances and goals” (48%), and “explaining changes to clients” (40%).
“I expect the cost of compliance to go up significantly,” said Jason Anderson at Wilbanks Securities, Inc.
Looking ahead to year-end revenue goals, advisors considered a lack of qualified leads and referrals (23%) a key impediment to reaching revenue goals, followed by the fact that clients remain on the sidelines (cash) due to market concerns (22%). Advisors also cited increased regulatory oversight and compliance requirements as a significant obstacle (19%).
